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Rev. Rul. 76-221 1976-1 C.B. 346

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Revenue Ruling 76-221

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Headnote

Exemptions; sporting rifles sold by Navy ships’ stores. Sporting rifles sold to the Navy Ships Stores Afloat Program for resale to U.S. Navy personnel for use at sea in target shooting do not qualify as supplies for vessels for purposes of the exemption from the manufacturers excise tax.

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ISSUE

Advice has been requested whether under the circumstances described below, the sale of sporting rifles comes within the scope of the exemption from manufacturers excise tax provided by section 4221(a)(3) of the Internal Revenue Code of 1954 for sales for use as supplies for vessels or aircraft.

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FACTS

A manufacturer of firearms sells taxable sporting rifles to the Navy Ships Stores Afloat Program for resale to personnel aboard United States Navy ships operating outside the United States. Since the rifles are not stocked aboard ships by the ships’ stores, personnel must order rifles from their ship’s store, which in turn places purchase orders with the manufacturer. The rifles are delivered to the ship’s store while the vessel is outside the United States. After resale to the customer, the rifle must be held in the ship’s armory, but can be withdrawn by the owner for use at sea in target shooting under guidelines provided by the commanding officer of the ship. Upon return to the United States, purchasers of rifles under the Program are required to execute an importation certificate in connection with their purchase. Purchases of firearms by the Program do not qualify for the exemption provided by section 4182(b) of the Code for firearms purchased with funds appropriated for the military department.

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LAW AND ANALYSIS

Section 4181 of the Code imposes a tax upon the sale by the manufacturer, producer, or importer of firearms. Section 4221(a)(3) of the Code provides that, under regulations prescribed by the Secretary of the Treasury or his delegate, no manufacturers excise tax shall be imposed on the sale by the manufacturer of an article for use by the purchaser as supplies for certain vessels. Under the provisions of section 4221(d)(3) of the Code, the term “supplies for vessels” means fuel supplies, ships stores, sea stores, or legitimate equipment on vessels of war of the United States or of any foreign nation, vessels employed in the fisheries or in the whaling business, or vessels actually engaged in foreign trade or trade between the Atlantic and Pacific ports of the United States or between the United States and any of its possessions. Section 316.28(c) of Regulations 46, made applicable to the 1954 Code by T.D. 6091, 1954-2 C.B. 47, provides that the term “sea stores” includes any article purchased for use or consumption by the passengers or crew, or both, of a vessel upon its voyage. Under the provisions of section 316.28(h) of the regulations, tax-free sales must be restricted to such of the articles covered by the regulations in this part as normally form a part of the supplies, stores, or equipment of the vessels enumerated. This section further provides that the exemption does not apply to articles that are for resale to passengers or members of the crew for consumption or use otherwise than during the voyage of a vessel, or to articles that are to be transported for the use of others, or to those that are to be used in any manner other than as specified in this section. It also provides that articles may not be sold by the manufacturer tax free direct to passengers or crew but only to the owner, officer, or charterer, or authorized agent of the vessel. By their nature, sporting rifles are not articles of the type that would normally form a part of sea stores to be purchased for use by passengers or crew of a United States Naval ship upon its voyage. Although there may be a use of the rifles by their owners while the ship is at sea, this is a very restrictive and different type of use than that contemplated for articles that would normally form a part of sea stores.

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HOLDING

Therefore, in the instant case the sporting rifles are not supplies for vessels within the meaning of section 4221(d)(3) of the Code. Accordingly, sales by the manufacturer of the rifles may not be made tax free to the Navy Ships Stores Afloat Program under the provisions of section 4221(a)(3).